California Department of Business Oversight Issues an Order Interpreting the Definition of Finance Lender

On November 29, 2016, the California Department of Business Oversight (“CA DBO”) issued an Order affirming its prior Desist and Refrain Order against a commercial lender. The CA DBO interpreted the definition of “finance lender” within the California Finance Lender Law (“CFLL”) and found that a commercial lender who did not actually self-fund loans but instead attempted to secure funds from outside sources met the definition of a “finance lender.”

The CFLL, generally, defines the term “finance lender” to include “any person who is engaged in the business of making consumer loans or making commercial loans. The business of making consumer loans or commercial loans may include lending money and taking, in the name of the lender, or in any other name, in whole or in part, as security for a loan, any contract or obligation involving the forfeiture of rights in or to personal property, the use and possession of which property is retained by other than the mortgagee or lender, or any lien on, assignment of, or power of attorney relative to wages, salary, earnings, income, or commission.”

In a Desist and Refrain Order, the CA DBO found that “actually making loans” is an indicium of finance lending, but not the only evidence of licensable activity. The CA DBO concluded that the activities listed above in the definition of “finance lender” are not mandatory criteria or an exclusive or exhaustive list. As the Order states, the words “may include” do not mean “may only include.”

The CA DBO determined that the commercial lender was in fact a finance lender, and, therefore, was required to obtain a license under the CFLL because the commercial lender held itself out as a “finance lender” by performing due diligence, evaluating risk, proposing terms and conditions, and participating in the decision whether to extend credit.

Finally, the CA DBO ruled that although the commercial lender’s activities also fell within the definition of “brokering,” this did not remove the commercial lender from the definition of “finance lender.” According to the CA DBO, a person whose actions satisfy the definition of a “finance lender” is a finance lender, regardless of whether some or all of that person’s activities would also qualify as brokering.

The full Desist and Refrain Order can be found here: http://leasingnews.org/PDF/PioneerCapital2016.pdf.